Challenger: mind the gap

The country’s dominant provider of annuities trades on a PER of less than 8. Unfortunately, that doesn’t tell us much about its actual value. James Carlisle finds another way.

Challenger ticks a lot of boxes. Its core annuities market has good growth prospects, driven by compulsory superannuation and an aging population. It’s by far the most dominant provider. Since 2008, while many financial companies have struggled, Challenger’s normalised earnings per share have risen 55% and are expected to remain steady over the next few years.

So why is the stock trading on a price-earnings ratio (PER) of less than 8? Either this is one of the greatest sharemarket opportunities since Flight Centre in 2008 (see 25 Feb 09 (Buy – $4.77)) or something fishy is going on.

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